Question
Marys Little Lamb, Inc. is analyzing the proposed purchase of a new machine for $2,000,000. The proposed machine has an estimated economic life of four
Marys Little Lamb, Inc. is analyzing the proposed purchase of a new machine for $2,000,000. The proposed machine has an estimated economic life of four years but will be treated as threeyear MACRS property for depreciation purposes. The machine will increase the firm's capacity, and it is expected to contribute $910,000 annually to earnings before depreciation, interest and taxes. The firm is in a 30% tax bracket and estimates its cost of capital to be 15%. Calculate the NPV and IRR of this investment using an Excel spreadsheet. Show and label your work. Formulas for NPV and IRR are preprogrammed in Excel.
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